The Federal Housing Finance Agency (FHFA) published a Final Rule amending its regulations for the Federal Home Loan Banks’ (FHLBanks)Affordable Housing Program (AHP), which incorporated many of the comments submitted by MACDC and other affordable housing advocates in response to a Proposed Rule amending the regulations.

In March 2018, FHFA published proposed amendments to AHP. As described by the FHFA, the proposed amendments would give the Federal Home Loan Banks more flexibility in allocating their AHP funds, in establishing special competitive funds that target affordable housing needs in their districts, and in designing their own project selection scoring criteria. It would also make other significant changes to the AHP Program.

After reviewing the proposed rule, and consulting with members and allies, MACDC submitted its comments to FHFA.MACDC commented on a number of provisions, focusing on issues related to transparency, proposed targeting, and long-term affordability. We were, therefore, pleased when FHFA issued the Final Rule, which addressed the concerns expressed by MACDC.

FHFA held a webinar on the key components of the Final Rule in December. The slides from the webinar provide a summary of the changes incorporated in the Final Rule.(FHFA Slides on Final AHP Rule)The Final Rule, published in November, makes changes to the AHP; the most significant changes are described below.

AHP Funding Categories:

It moves from two categories (a Competitive Application Program and a Homeownership Set Aside Program) to three categories (A General Fund, Targeted Funds, and a Homeownership Set Aside). The Final Rule incorporates some statutory and regulatory priorities for the General Fund, including Underserved Communities and Populations, Creating Economic Opportunity, and Community Stability including Affordable Housing Preservation. Up to 40% of a FHLBank’s annual AHP funds can be allocated to up to three Targeted Funds, at the discretion of the FHLBank.

Changes to Homeownership Set Aside Program:

While the maximum set aside remains at the greater of 35% of the FHLBank’s annual total AHP contribution or $4.5 million, the maximum grant award is increased from $15,000 to $22,000 per household, subject to automatic annual adjustments. In another change, one third of the Homeownership Set Aside Program funding allocation must be directed to first-time homebuyers, or households for owner-occupied rehabilitation (rehab), or combination of both.

Changes to Monitoring Requirements for LIHTC Projects and Projects with Government Funds:

The Final Rule removes the requirement for the FHLBanks to review back-up household income and rent documentation at initial monitoring for AHP projects which also receive Low Income Housing Tax Credits. The Rule also removes the requirement for the FHLBanks to reviewback-up household income and rent documentation during initial and long-term monitoring for AHP projects that also receive funds from certain government housing programs.

Homeownership Retention Agreements:

The Final Rule eliminates retention agreements for homeowners receiving AHP subsidy solely for rehab. For homeowners receiving AHP subsidy for purchase, and for purchase in conjunction with rehab, the Rule establishes a de minimis exception to subsidy repayment where the amount subject to repayment is $2,500 or less.

Implementation Dates:

For owner-occupied retention agreement requirements, the compliance date is January 1, 2020. For all other provisions, the compliance date is January 1, 2021. A FHLBank may choose to implement any set of related provision in the Final Rule at an earlier date.

Of significant importance, several other changes proposed by FHFA were not included in the Final Rule, in response to comments submitted by MACDC and others. The most significant of these problematic changes proposed would have required the FHLBanks to re-rank project scoring to meet FHFA Outcome Requirements, which could have resulted in a FHLBank replacing a higher scoring application with a lower-scoring application, disrupting AHP’s predictability and transparency. Another proposed change would have imposed two well-intentioned, but problematic targeting requirements, which may not be achievable in some markets. A third proposed change would have been a blanket removal of the five-year retention agreements from all assistance to owner occupants, including assistance for purchase, leaving open the possibility for speculative gain. MACDC is grateful for FHFA’s responsiveness to these concerns in its Final Rule, and to our allies for joining MACDC in sharing concerns about the Proposed Rule.

MACDC is aware of the critical nature of AHP funds to the feasibility of many affordable housing projects in Massachusetts. We believe the Final Rule will result in changes that allow the FHLBanks to better tailor the AHP to the needs of the communities they serve, while preserving the scoring transparency that has long been an essential feature of the program.